Fitch Ratings Concludes Delta Tunnels Project Will Increase Water Rates

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On August 16, Fitch Ratings confirmed what Delta Tunnels opponents have been saying for years — the proposed California WaterFix project being currently fast-tracked by the Trump and Brown administrations would likely drive a significant increase in monthly water rates.

This increase in water rates would have a particularly egregious impact upon people in low income and environmental justice communities in Southern California that are right now struggling to pay their water bills. The increase in water rates driven by the construction of Jerry Brown’s “legacy project,” the Delta Tunnels, would only make things worse for families having a hard time getting by in these difficult times.

The ultimate fate of the California Water Fix, the controversial plan to divert water through two 35 mile long tunnels under the Sacramento San-Joaquin River Delta, is “nearing resolution as agencies that would benefit from, and pay for such water, take a position on the outcome,” according to an analysis from Fitch Ratings.

The Trump and Brown administrations and project proponents claim the tunnels would fulfill the “coequal goals” of water supply reliability and ecosystem restoration, but opponents point out that project would create no new water while hastening the extinction of winter-run Chinook salmon, Central Valley steelhead, Delta and longfin smelt, green sturgeon and other imperiled fish species.

The project would also imperil the salmon and steelhead populations on the Trinity and Klamath rivers that have played a central role in the culture, religion and livelihood of the Yurok, Karuk and Hoopa Valley Tribes for thousands of years.

“The estimated $16.3 billion in project costs would be borne by the utilities’ rate payers, including State Water Project (SWP) and Central Valley Project (CVP) members,” Fitch Ratings noted. However, economists have estimated the real cost of the project could go as high as $68 billion, including payment of debt on the bonds issued.

Fitch Ratings said the Metropolitan Water District of Southern California (MWD), a SWP wholesaler to 26 member agencies serving about 19 million residents, expects to bear about one-quarter of the total cost.

MWD estimates the monthly household bill within its service territory would increase by only about $2-$3, but both Fitch Ratings and Delta Tunnels opponents say this low ball estimate could go much higher.

“The MWD estimate is based on a cost split for the Fix of 55% SWP and 45% CVP,” Fitch Ratings explained. “However, this assumes that all other SWP and CVP contractors sign on to the Fix. The cost to MWD and its ratepayers could be higher if some contractors decline to participate.”

Fitch Ratings noted that the timing and ultimate cost of the project “are important to California’s water and sewer utilities, as this cost ultimately will be passed on to end users.”

“Many California utilities implemented substantial rate increases or alternative rate structures in recent years to mitigate significant declines in financial margins in fiscal years 2015 and 2016 due to conservation-related demand declines resulting from the state’s five-year drought. The cost related to the Fix would be an added charge,” the analysis stated

“Ratepayers have thus far shown a willingness and ability to absorb higher rates and most California utilities have ratepayer bases able to bear the estimated increase to fund the Fix. However, some agencies have water bills that already exceed Fitch’s affordability threshold (combined water and sewer utility bill equal to, or higher than, 2% of median household income) and could become more pressured,” Fitch Ratings concluded.

The Fitch Ratings analysis follows the release of a white paper by MWD staff concluding that the WaterFix is the “most cost effective” alternative to ensuring affordable and reliable water supplies:…

“If we keep our existing imported water supply, made more reliable with California WaterFix, it would cost approximately $2-3/mo. per average household in the Metropolitan service area,” the report stated. “If we tried to develop new local supplies to replace the imported water supply we would lose without California WaterFix, it would cost two or more times as much per average household in the Metropolitan service area.”

Restore the Delta (RTD) submitted a response to MWD’s third and final Delta Tunnels white paper exposing what the group described as “the gaping holes” in MWD’s financial analysis on various California WaterFix costs.

“With its latest financing paper, MWD pedals a wish and a prayer to its board that a $17 billion Tunnels project will only cost its 6.2 million residential customers $2 to $3 per month,” said Tim Stroshane, RTD policy analyst. “MWD’s rosy picture omits the cost of their customers’ Tunnels water use. This is analytical malpractice of the highest order.”

Likewise, Kyle Jones, policy advocate for Sierra Club California, said, “Metropolitan Water District continues to paint the Tunnels in the best light, using the lowest cost estimates possible. This proposed fantasy ignores costs of mitigation for their environmental harm, and assumes that all contractors are willing to pay for this $68 billion boondoggle.”

Jones said Metropolitan also “cherry picks” alternative options for the Tunnels that look at only the most expensive options.

“Any true alternatives analysis, including conservation, efficiency, and groundwater cleanup, would show that there’s a better path forward for Metropolitan customers to develop a climate-resilient water system that isn’t conditioned on destroying the San Francisco Bay Delta,” said Jones.

“MWD’s failure to analyze water costs in dry and drought years and water use by consumers so as to determine the real cost per household for WaterFix make this analysis invalid,” concurred Barbara Barrigan-Parrilla, RTD Executive Director. “MWD staff clearly wants to build this project so that water can be sold for maximum profit.”

Dr. Jeff Michael, University of the Pacific economist, and Doug Obegi, NRDC senior attorney, wrote similar analyses of the MWD white paper.

On August 14, MWD held a public workshop on plans to fund the Delta Tunnels.  Ratepayer group representatives at the meeting charged that the tunnels will burden them with higher bills for water to be used primarily by corporate agribusiness interests, now irrigating drainage impaired land on the west side of the San Joaquin Valley. To read the LA Times story on the workshop, go here:

“Metropolitan Water District’s finance plan for the Delta Tunnels, estimated to cost at least $17 billion, confirms that the project would burden Southern Californians with higher water bills to pay for tunnels that won’t deliver them any new water,” said Brenna Norton, senior organizer for Food & Water Watch. “Metropolitan’s cost assumptions are misleadingly low as they do not include interest repayment, and are based on the dubious assumption that agricultural districts will pay for 45 percent of the project.”

Norton said a  “more realistic estimate” of the project’s costs to Los Angeles households would be from $7 to $16 per month for more than 40 years, amounting to over $3300 per household, according to one independent study.

She also said the tunnels would impose an “unfair, useless tax” when money is desperately needed to fix Southern California’s aging pipes and to build storm water infrastructure to increase the local supply. Norton urged cities and water agencies that make up Metropolitan’s board, including Los Angeles and the Central Basin Water Agency, to “protect their taxpayers and reject this wasteful project.”

Over the past few weeks, the Brown administration has incurred the wrath of environmental justice advocates, conservationists and increasing numbers of Californians by ramrodding Big Oil’s environmentally unjust cap-and-trade bill, AB 398, through the legislature; approving the reopening of the dangerous SoCalGas natural gas storage facility at Porter Ranch; green lighting the flawed EIS/EIR documents permitting the construction of the California WaterFix; and issuing a “take” permit to kill endangered salmon and Delta smelt in the Delta Tunnels.

Governor Brown also showed his authoritarian bent by accusing AB 398 critics of practicing “forms of political terrorism that are conspiring to undermine the American system of governance” in an interview with David Greene of NPR (National Public Radio) on July 25:

When Fitch Ratings, environmental leaders, and a greatly respected economist all agree that the Delta Tunnels will further increase water rates substantially more than the Metropolitan Water District estimates, then you know it’s time for MWD and other agencies to reject Governor Brown’s environmentally destructive and enormously expensive project once and for all!

To read the Fitch Ratings Analysis, go here:…

To read Restore the Delta’s response, click here.

To read Obegi’s blog, click here.

To read Michael’s blog, click here.